We use cookies to customise content for your subscription and for analytics.If you continue to browse Lexology, we will assume that you are happy to receive all our cookies. For further information please read our Cookie Policy.

CCI issues cease and desist order to Indian film associations following anti-competitive conduct

By way of an October 31 2017 order, the Competition Commission of India (CCI) directed the All India Film Employee Confederation and various regional associations – comprising 25 trade unions and associations of junior artists, camera crew, dancers and art directors in the Bollywood film industry – to cease and desist from existing practices of disrupting competition and fair play in the market through anti-competitive conduct, including suspending work and boycotting film directors who engage artists from outside the associations.

The order reiterated that trade unions and associations cannot claim immunity from the Competition Act 2002 on the grounds that they are registered under the relevant statute (ie, the Trade Unions Act 1926) because, unlike the Monopolies and Restrictive Trade Practice Act 1969, the Competition Act does not exempt trade unions. The order establishes the importance of maintaining competition in the marketplace even in matters concerning workers' rights, which are otherwise protected under the respective labour statutes.

Facts

Film and TV content production requires the engagement of skilled professionals, collectively referred to as 'craftspeople'. In the past, film producers would directly engage with craftspeople. However, over time, craftspeople have organised themselves into respective federations, associations and trade unions.

Claimant Vipul A Shah, an independent film producer and director, alleged that the these associations prohibit producers from engaging craftspeople who are not members of the respective associations and encourage the boycotting of producers who appoint craftspeople outside the associations.

Since the services of craftspeople are imperative to film and TV production, a memorandum of understanding was executed on October 1 2015 between various film and TV content producers and the respective associations. In addition to fixing workers' shifts, times, wages and rates, the memorandum provided that film producers must deal exclusively with craftspeople who are members of the defendant associations.

Shah argued that the memorandum constituted an anti-competitive agreement under Section 3(3) of the Competition Act. On prima facie evidence of a contravention of the act, the director general was directed to investigate the claims against the defendants.

The director general found that both the memorandum and the defendants' conduct violated Sections 3(3)(a), (3)(b), (3)(c) and (1) of the Competition Act.

Decision

Applicability
The preliminary issue to be decided by the CCI was whether the Competition Act was ipso facto applicable to the defendants, which are registered trade unions under the Trade Unions Act.

The defendants argued that Section 3 of the act, which deals with anti-competitive agreements, does not cover coercive actions taken by:

non-players;

labour unions; or

worker unions.

On analysis of the Trade Unions Act, the CCI observed that immunity is granted only in relation to proceedings regarding certain limited actions and under specified statutes. The act does not state that it does not apply to a trade union or other association of workers or employees formed for their own reasonable protection. The immunity offered to trade unions under Section 18 of the act relates only to civil proceedings and is therefore inapplicable to proceedings before the CCI, which is an expert body.

Further, the CCI observed that although trade unions can undertake activities which protect and secure the rights of their members, such activities must not aim to restrain competition, harm consumers or be used to collude between competitors. When trade unions transgress their legal obligations and facilitate collusive or collective decision making with the aim of limiting or controlling the production, distribution, sale or price of or trade in goods or services by their members, such conduct violates the Competition Act. Therefore, they must be examined under the act. Competition law is not an impediment to appropriate trade union activities and members of such unions should be aware of the types of conduct that the law proscribes when carrying out the union's programmes and activities.

Definition of 'enterprises'
The defendants' second argument was that since they were not 'enterprises' as defined under the Competition Act, Section 3 of the act was inapplicable.

The CCI relied on the Supreme Court decision in CCI v Coordination Committee of Artists and Technicians of WB Film and Television, holding that an entity – regardless of its form – constitutes an 'enterprise' if it engages in economic activity. The CCI also clarified that where the members of a trade union make decisions in relation to the production, distribution or exhibition of films on behalf of members who are engaged in the similar or identical business of production, distribution or exhibition, the association's decisions reflect the collective intent of its members. In such circumstances, the actions of the trade union can be examined under the Competition Act.

The CCI found that the craftspeople had offered their respective services to the film industry in return for a certain amount of remuneration. Since they had assumed financial risks pursuant to the services that they offered, they were engaged in economic activity and could therefore be considered part of an enterprise.

The CCI also held that even if the defendants were not enterprises, they would still be 'associations of persons', which fall within the purview of Section 3 of the Competition Act.

Memorandum of understanding
The third issue decided by the CCI was whether the October 1 2010 memorandum of understanding between the defendants violated Section 3(3) of the Competition Act.

The CCI noted that Clause 6 of the memorandum restricted the freedom of producers to acquire the services of any non-member artist or worker, as well as restricted persons who are not part of the defendant associations. The CCI also found that under Clause 18 of the memorandum, the defendants had formed a vigilance committee, which inspected filming locations to ensure strict compliance with Clause 6. The CCI held that these clauses restricted fair and free competition in the market, and limited or controlled the market or the provision of services.

Relying on its decisions in Reliance Big Entertainment Limited and UTV Software Communications Limited, the CCI held that the imposition of member-to-member working conditions through a memorandum of understanding or articles of association reflects the collective behaviour of an association's members to the effect that competitor non-members are prevented from competing effectively in the market. The agreement limited the supply and distribution of films in the territories under the control of the defendants and therefore violated Section 3(3)(b) of the Competition Act.

With respect to the memorandum clause fixing minimum wages and increasing wages on a yearly basis, the CCI held that such a clause, coupled with Clause 6, led to the fixation of prices. However, since wages are also a condition of labour and terms of employment, they fall within the scope of legitimate trade union activity when negotiated by a registered trade union. Therefore, the clause did not violate Sections 3(1) and 3(3) of the Competition Act.

Penalty
On the issue of penalty, the CCI observed that the practice adopted in the memorandum of understanding had existed since 1966 and aimed to resolve disputes between film producers and the craftspeople that they employ. Considering the age of the memorandum and the fact that the defendants were associations of daily-wage earners, the CCI imposed no monetary penalty and issued only a cease and desist order.

Comment

The order is the latest of a series of CCI orders against trade unions and associations. The CCI has reiterated its position that decisions made by such associations constitute agreements under Section 3(3) of the Competition Act. As a result, trade unions which have previously enjoyed explicit immunity under the Monopolies and Restrictive Trade Practices Act have increasingly found their decisions scrutinised by the CCI under the Competition Act. Consequently, many associations – including chemists and druggists, Kerala film exhibitors and cement manufacturers – have been penalised by the CCI under Section 27 of the Competition Act. Members of trade unions and associations should therefore be aware of the conduct that falls within the scope of the act when undertaking union activities and functions.